Exam 6: Corporate-Level Strategy

Virtual integration tends to erode the relationships between suppliers and customers as personal contacts are replaced with impersonal electronic communications.

As noted in the Strategic Focus, Illinois Tool Works acquires small, low-margin but mature industrial businesses and restructures these businesses in order to improve profits. Illinois Tool Works is following a strategy of ____________ diversification.

Case Scenario : Jewell Company. Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency) and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80% of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart will help it turn Plastico's prospects around. -(Refer to the above Case Scenario ) Why would the acquisition of Plastico be good for JC?

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the _______________diversification strategy to create ____________.

Successful product diversification is expected to increase the variability in the firm's profitability since the earnings are generated from several different business units.

Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.